TMI Blog1990 (3) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and in the circumstances of the case, the Tribunal is right in law and fact in holding that (i) no operations have been carried on in India by the foreign companies and the services rendered by the technical personnel are not attributable to any operations of the foreign companies ? (ii) the supply, deputation or making available such personnel for work in India along with the supply of engineering know-how or documentation had been outside India and the further operations in India were the responsibility only of the Indian company? 3. Whether, on the facts and in the circumstances of the case, and on an interpretation of the agreement, the Tribunal is right in law and fact in holding that the technical personnel made available to FACT became their employees, there had been no operation attributable to the foreign companies which can give rise to any profits being earned in India ?" The following questions have been referred for the decision of the court in Income-tax References Nos. 481 and 482 of 1985: "1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that: (i) there have been no operations carried on in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "FACT")' In Income-tax References Nos. 446 to 451 of 1985, the proceedings started in pursuance of an order passed by the Income-tax Officer under section 201(1) of the Income-tax Act treating FACT Ltd., Udyogamandal, as an assessee in default for failure to deduct at source payments made to the non-resident under section 195(1) of the Act and the assessments relevant to Income-tax References Nos. 481 and 482 of 1985 and Income-tax Reference No. 23 of 1990 were made on the FACT as agent of two foreign companies under section 163 of the Income-tax Act. We heard counsel for the Revenue, Mr. P. K. R. Menon, as also counsel for the assessee, Menon and Pai. The crux of the matter involved in these referred cases is whether non-resident collaborators (companies) rendered services to the respondent-assessee in India. FACT Ltd. entered into collaboration agreement with three foreign companies. The agreement entered into by FACT with Engineering and Industrial Corporation of Luxumburg, Belgium (hereinafter referred to as "EIC"), on February 6, 1968, provided for furnishing information and assistance necessary to enable FACT to quote for and build Phosphoric Acid Plants in India and to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the tax payable. Appropriate orders were passed on this basis. In appeal, the Appellate Assistant Commissioner held that the place of supply of the services was the foreign country, that no part of the income arose in India as the payments were made under the collaboration agreement and that there was no basis for working out the tax on "tax on tax basis". In second appeal filed by the Revenue, the Appellate Tribunal held that the terms and conditions of the three collaboration agreements with the above three foreign companies were more or less similar to the one considered by the Madras High Court in CIT v. Fried Krupp Industries, [1981] 128 ITR 27. The Appellate Tribunal followed the decision of the Supreme Court in Carborandum Co. v. CIT [1977] 108 ITR 335 and the decision of the Madras High Court aforesaid and held that there would have been no operations carried on in India by the foreign companies and that the services rendered by the technical personnel are not attributable to any operations of the foreign companies, that the supply, deputation or making available such personnel for work in India along with the supply of engineering know-how or documentation have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with EIC's scale of daily rates current at the time and in accordance with standard EIC terms for the loan of such engineers set out in Schedule B to this agreement while taking into account the relevant information obtained from the competent authorities in Luxembourg or in Belgium. 10. Payments. 10.1 All payments to EIC for services rendered under this agreement shall be made in Belgium Francs in Luxembourg, except for expenses incurred in India by or on behalf of the Supervising Engineers referred to in 6.2 and 9 above.. . 10.3. It is understood that no taxes are leviable under the Indian Tax Laws for the services rendered by EIC under the terms of this agreement. In the event of any such tax being levied in India, FACT will ensure that all payments to EIC shall be made in Luxembourg in Belgium currency in such manner as would, after deduction tax, leave in hands of EIC the net amounts due for the contract of sale concerned. So long as Indian law permits, FACT will seek approval of the Government of India for exemption from or concessions in payment of Indian taxes on the remuneration to foreign technicians lent to FACT under this agreement... 12. FACT a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principles stated by the Supreme Court in Carborandum Co. v. CIT [1977] 108 ITR 335 and followed by the Madras High Court in CIT v. Fried Krupp Industries [1981] 128 ITR 27 and applied to the terms of the agreement before us, we have no hesitation to hold that there have been no operations carried out in India by the foreign companies and the services rendered by the technical personnel are not attributable to any operations of the foreign companies. The supply, deputation or making available such personnel for work in India along with the supply of engineering know-how or documentation had been outside India and the further operations in India were the responsibility of the Indian company only. The terms of the agreements go to show that the technical personnel made available to FACT became their employees. It is, therefore, clear that there had been no operations attributable to the foreign companies which can give rise to any profits being earned in India. While making the remittances to the foreign company FACT was not, therefore, bound to make any deduction at source." We are afraid that the Appellate Tribunal has failed to pose the question that arose before it for consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical personnel are not attributable to any operations of the foreign companies in India. We perused the appellate order passed by the Appellate Tribunal dated March 31, 1982, with care. It should be stated that the Appellate Tribunal failed to pose for consideration the appropriate question that arose before it and from an appropriate angle. The approach or perspective in which the matter was viewed did not bring home the aspect or basis on which the Revenue based the order impugned, or assailed by the assessee. Under section 195(1) of the Income-tax Act, if any person is responsible for paying any sum chargeable tinder the Act to a foreign company, he shall, at the time of payment thereof in cash, deduct income-tax thereon at the rates in force. Under section 201 of the Act, if any person so responsible fails to deduct the income-tax, he shall be deemed to be an assessee in default. The above aspect did not receive direct or proper consideration at the hands of the Tribunal in disposing of the appeals. The said aspect could be evaluated or analysed only if the basic question, whether the foreign collaborator rendered any service in India in terms of the agreement on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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